The political turbulence and polarization of the past decade requires a strategic shift in how policymakers should approach taxing the wealthiest Americans. That’s the big takeaway from a new report released today by the Institute on Taxation and Economic Policy, which argues that to ensure tax reforms survive ideological hostility from the Supreme Court and future administrations, Congress must prioritize strengthening the federal corporate income tax.
“The fundamental problem is that the wealthiest Americans receive massive income in the form of unrealized capital gains that currently go untaxed,” said Steve Wamhoff, ITEP Federal Policy Director and the report’s author. “Proposals to tax those unrealized gains or even tax wealth directly are very important and are worth pursuing. But any big tax reform plan should also include a robust corporate tax as the indispensable, resilient building block that ensures this income is captured before it ever reaches the bank accounts of billionaires.”
The report identifies three critical steps to create a tax system that is both progressive and “resilient,” meaning it is designed to withstand legal challenges and executive-branch interference:
Establishing a Strong Global Minimum Tax for Corporations: Implementing standards that meet or exceed international agreements to prevent multinational corporations from shifting profits to tax havens.
“The Global Minimum Tax is more than just a tool for fairness; it is a safeguard for democracy,” said Thomas Georges, Policy Officer at the FACT Coalition. “By fully committing to this international framework, the U.S. can create a ‘lock-in’ effect that prevents a future Congress or administration from gutting our tax base, as any excessive corporate tax cuts would simply be neutralized by other participating countries.”
Subjecting Large “Pass-Through” Businesses to Corporate Income Tax: Expanding the reach of the corporate income tax to apply to massive entities that currently avoid corporate taxes despite functioning like major corporations.
“For too long, massive ‘pass-through’ entities like the Trump Organization or Bloomberg have enjoyed the benefits of incorporation without paying their fair share of corporate taxes,” said David Mitchell, Senior Fellow, Washington Center for Equitable Growth. “This report provides a commonsense roadmap to treat these businesses like the giant companies they are, closing one of the exits the wealthy use to avoid contributing to our shared infrastructure and society.”
Raising the Corporate Tax Rate for the Largest Firms: Increasing rates on a graduated scale for companies with the highest taxable income once common avoidance loopholes are closed.
The report details how the Trump administration has used regulatory power to unilaterally cut taxes and warns that current proposals to tax the unrealized capital gains or the wealth of billionaires face significant risks from ideological justices on the current Supreme Court.
For this reason, ITEP suggests including corporate tax reform in any major tax plan and also including legislative safeguards to ensure that someone has the legal “standing” required to sue and block illegal executive-branch tax cuts for corporations.
“Advocates and lawmakers should focus on all the options we have to better tax the rich. Any comprehensive plan for progressive tax reform must have as its foundation reforms of the corporate income tax that are less likely to be overturned by a hostile Supreme Court or easily sabotaged by a future president,” said Amy Hanauer, Executive Director of the Institute on Taxation and Economic Policy. “By taxing profits at their source through the corporate code — a practice the Supreme Court has long upheld as a constitutional excise tax — we can effectively target the income of the uber-rich in a way that is far more difficult to undo.”
